inta 2016 nevium roundtable brand due diligence

BrandDueDiligence

DougBaniaandBrianBuss

INTA2016AnnualMeeting,May23,2016

2INTA2015AnnualMeeting,May23,2016

MeasuringtheValueofBrandsTop5“MostValuableBrands”fromthreedifferentpublications

2015BrandValuationTables(USDMillions,%ofTEVat12/31/15)

Rank Brand Finance Millward Brown Interbrand1 Apple $128,303 21% Apple $246,992 41% Apple $170,276 28%

2 Samsung 81,716 72% Google 173,652 37% Google 120,314 26%

3 Google 76,683 16% Microsoft 115,500 30% CocaCola 78,423 37%

4 Microsoft 67,060 18% IBM 93,987 57% Microsoft 67,670 18%

5 Verizon 59,843 20% Visa 86,009 47% IBM 65,095 40%

Method Relief fromRoyalty ExcessProfitspairedwithanapportionmentexercise

Apportionment ofTEVbasedonbrandstrengthanalysis

TherankingschangeyeartoyearandtheValuationsvarybylargeamountsBrandappearstoincludeabundleofIPandIntangibles


HowIPContributestoValue

EconomicBenefits

Monopoly Barrier toentry,excludeothersfromusing

• Pricingpower• Greaterprofitmargins

Litigation Seekdamages ifothersuse

• Litigationaward(PVofawardlesscosts)• Threatoflitigation(force“Monopoly”or“Permission”)

Permission Abilitytobecompensatedwhenothersuse

• Valueoflicense(PVofroyalties+fees– costs)• Valueifsold

PromotionSignalsinnovation,uniqueness,sourceoforigin toconsumers

• Additionalsales• Reducedmarketing• Incrementalmargin

ValueisDerivedFromtheEconomicBenefitsCreated


WhatAssetsareIncludedintheEvaluation?

Earlyon,Allpartiesagreeonwhatisbeing

valued

Whichassetswillbevalued?

TrademarksCopyrights

PublicityRights

PatentsCopyrightsTradeSecrets

MarketingAssets TechnologyAssets

DomainNamesCustomerListsRelationships

Practices/Procedures

Know-how/ResearchTestResultsRelationships

Practices/Procedures

WhatotherassetsarerelatedtotheIP?


EvaluatingBrandsDimensionsofBrandValue&TheBrandScoreTool

Nevium’s analyticalmethodologyidentifiesandevaluatesthecomponentsofabrand.

TheBrandScoreindicatesthestrengthsandweaknessesofcorporateorproductbrand,andprovidesaframeworkforimprovements.

TheBrandScoreisafactorinunderstandingthevalueofabrand,andcanbeusedtomeasurethechangingcontributionofbrandassetsovertime.

TheBrandScoreanalyzesabrandusing16measurementpointsgroupedintofourdimensions.


EvaluatingBrandsComponentsofTheBrandScoreTool

Brand Equity Performance

History Brand has signified the same products for a long time Sales / Growth Brand is used with a significant and/or growing

business

Consistent Use Brand message has been used consistently over time Premium Pricing Products using the Brand IP command a price

premium relative to comparable products

Loyalty Customers consistently seek out new products associated with this Brand IP Profitability Branded sales yield higher gross profit and/or

operating profit margins

Relevance Brand IP is relevant to today’s customers; brand is featured prominently on websites and social media Licensing The trademark owner is receiving royalties or

compensation from licensees

Market Presence Opportunity

Awareness Brand is well known in the market place Marketplace Brand IP is used in a growing industry

DifferentiationBrand IP is different and unique vs. comparable products. Marketing efforts focus on the Brand IP to differentiate the products / services

Transferability / Extendibility Brand IP can be used with other products / services

Market ShareProducts using the brand have captured a significant market share, or a share greater than comparables

Umbrella Brand IP is used, or could be used, to support sub-brands

Business Fit

The brand is used by a business unit that fits strategically with the firm. The branded product is central to the firm’s success and the Brand is used consistently by the entire firm.

Clear Path / Freedom to Use

No disputes over TMs. No similar brands, logos or domain names used in the marketplace


TheBrand&IPValuationProcess

Twotypesofcalculations:

• ApportionfuturebenefitstotheIP,calculatepresentvalueofapportionedfuturebenefits

• Ifalicenseisreasonable,orifusingaRelieffromRoyaltycalculation,applyaroyaltyratetoameasureoffuturebenefitsandcheckifbothlicenseeandlicensorwillbenefitfromthetransaction


ForecastingFutureBenefits

Asset Remaining Life (Years)

Cash Flow ($)

Asset Value ($)

IP:RemainingLife,CashFlow&Value

• IPandtheproductsthatuseIPhavelifespans

• Companiescanexpectperpetualgrowth,IPcannot

• BenefitsfromtheIPwillgrow,peakandthendeclineasotherIPandotherproductstaketheirplace

Guiding Concepts

TotalContribution

Patents

IP:Relativecontribution

Trademarks&OtherIntangibles

Time

Products&Businesses

BusinessRevenues

ProductLifeCycle

IPRemainingLife

Benefit

Today’sProducts

ProductsIn-development

FutureProducts


DriversofValue

BusinessValue>ValueofIPAssetsownedbytheBusiness

Apportionment:IdentifytheportionoffuturebenefitsderivedfromuseoftheIPAssets

PresentValueofExpectedFutureBenefits

ValueofBusiness

IntangibleAssets

TangibleAssets

Copyrights

Patents

IntangibleAssets

TangibleAssets

Trademark

IPdependsonotherassetsandresourcestogenerateeconomicbenefits


Itboilsdowntoapportionment

KeyConcept:Apportionment


• WebsiteAnalytics• SocialMediaAnalysis• ScoringAnalyses• CompanyLanguageAnalysis• Comparablelicensingtransactions(“CUT”)• Excessprofits(“CPM”)• Featurecountandcomparison• MarketingMixAnalysis• PromotionalUseAnalysis• Surveys/Interviews/FocusGroups

ToolstoApportionEconomicBenefits

ApportionmentFramework

Whatisthevalueofthisbox?

ApportionmentTools

PresentValueofExpectedFutureBenefits

ValueofBusiness

IntangibleAssets

TangibleAssets

Copyrights

Patents

IntangibleAssetsTangibleAssets

Trademark


ValuationUsingaLicensingFramework

IP Marketplace

Product Marketplace

Licensor

Transactionrequiresbenefitformultipleparties

For LicenseeValue = Revenue –Compensation Paid

(often a Royalty)

Licensee

Customer

For LicensorValue = Royalty – Cost to Develop, Own & SupportIP Compensation

Product Revenue


FindingaReasonableRoyaltyRate

Income StatementRevenues

Gross Sales 1,000 100%Discounts 5 1%

Net Revenue 995 100%

Cost of Sales 450 45%Gross Profit 545 55%

Operating ExpensesSales & Marketing 100 10%General & Admin 75 8%Research & Development 50 5%Depreciation 35 4%Other 15 2%Total OpEx 275 28%

Operating Income 270 27%

Other Income / (Expense)Interest, net (55) -6%Non-recurring (45) -5%Sale fo Assets 85 9%Total Other Income (15) -2%

Pre-tax Income 285 29%Tax Expense (100) -10%

Net Profit 185 19%

Notallroyaltiesarethesame

BestforLicensor

BestforLicensee

Fina

ncialR

iskto

Licen

see $/Unitmade

$/UnitSoldGrossSales($invoiced)GrossSales(Collections)NetSalesGrossProfitsEBITNetProfits

LevelofBenefitDrivestheRoyalty


ValueforBothParties

WillBothPartiesBenefitfromthe

LicensingOpportunity?

Period 0 1 2 3 4 5Forecast Licensee Sales 1,000 1,300 1,495 1,645 1,727 1,761 Growth Rate 30% 15% 10% 5% 2%

Annual Royalty Rate 8% 8% 8% 8% 8%

For IP User (Licensee)Up-front payment (50) Annual Fee (5) (5) (5) (5) (5) Additional Profit Margin 15% 20% 15% 10% 5%Additional Profits - 195 299 247 173 88 % of Sales Royalty - (104) (120) (132) (138) (141) Total Benefits (50) 86 174 110 30 (58) Present Value @ 25% (50) 69 112 56 12 (19) Value of IP to Licensee 180

For IP Owner (Licensor)Up-front payment 50 Promotions Commitment (130) (150) (82) - - Promotions Commitment % 10% 10% 5% 0% 0%Annual Fee 5 5 5 5 5 % of Sales Royalty 104 120 132 138 141 Total Benefits 50 (21) (25) 54 143 146 Present Value @ 20% 50 (18) (17) 31 69 59 Value of IP to Licensor 174

InternetAnalyticToolsforBrandValuation,DamagesandDefamation

Nevium IntellectualPropertySolutionsSanDiego,Californiawww.nevium.com

INTA2016AnnualMeeting,May23,2016

ThankYou